Scoring yourself

But first, in order to improve retention, we first have to be able to measure it.

After all: “What gets measured gets improved.”

These are the three retention measurements I usually start with:

The “How would you feel if…?” survey

User Churn and Revenue Churn

Quick Ratio

Sean Ellis, who ran growth in the early days of Dropbox, LogMeIn, and Eventbrite benchmarked nearly a hundred startups with his customer development survey.

The most critical question the survey asks is “How would you feel if you could no longer use the product?” Customers given the survey could answer with “Very disappointed,” “Somewhat disappointed,” or “Not disappointed.”

Companies that struggled to find growth (and thus couldn’t acquire or retain enough customers) almost always had less than 40% of users respond “Very disappointed,” whereas companies with strong traction (i.e. strong acquisition and retention) almost always exceeded that threshold.

On a more tangible level, both User Churn and Revenue Churn serve as staples to measure retention as they directly measure the number of customers who cancel within a given time period as well as the revenue associated with each lost customer.

While it’s not impossible, it will likely be very hard to grow, and continue growing, if your churn rate is above 10%. Ideally, both metrics should be in the single digits, if not below 5%.

And the Quick Ratio tells you at a glance if your business is growing or contracting. It essentially divides all your positive MRR inputs (new, expansion, and reactivation) and divides it by your negative MRR inputs (contraction and churn). Above 1.0 means you’re growing, below, and you’re contracting.

The Quick Ratio, unlike other metrics, tells you how dire the situation is.

Take an audit of how you’re doing in these three metrics to grasp your room for improvement.

Now, without further adieu, let’s look at 14 retention strategies you’ll wish you’d have implemented a year ago.

1. Choose the right activation model

Most marketers and entrepreneurs optimize their activation model — how you get users into the product — for lead volume or lead conversion rate. But at the end of the day, customers are all that matters.

Find the activation model that results in the most customers long-term. Again: Not the most leads… the most customers.

Notion’s secret weapon is that you can use the product completely for free until you become a power user — right when you’re ingrained, hooked, and invested — which in their case is represented by a certain number of “blocks” you use in the app, and then they ask you to upgrade to a paid account.

Evernote’s lost opportunity is in their model. They couldn’t successfully monetize Scott because he could do everything he wanted to for free.

How do you know if your activation model is serving retention well? With the right activation model, you should see healthy retention in the first 30-60 days of a customer’s lifetime with you without any major drop-offs.

2. Craft a delightful onboarding experience

Onboarding — also a part of activation — is closely related to retention because it determines how well you can enable someone to use your product, and ultimately, the value they get from using it.

You can’t expect someone to be a perfect driver if they’ve never had driving lessons before. You can’t be good at a game if you don’t know the rules.

This is where onboarding comes in.

Fullstory is a great example of technical onboarding, where the main challenge is getting a code snippet installed. By giving users multiple options — setting up with Google Tag Manager, copying the code snippet, and sending instructions to someone else — they decrease the likelihood of someone rage quitting.

Storychief guides users with a friendly checklist that makes it crystal clear what you should do next.

Since Quickbooks can be used by a huge variety of different people and for many different purposes, they start by asking users what the end goal is so they can prevent confusion, frustration, or wasted time doing something that leads to the wrong outcome.

It’s a good idea to mix in a combination of both scheduled, education emails as well as triggered, action-oriented emails to keep users engaged, educate them about the product, and make sure they’re completing the necessary steps to find value.

Here are two examples of these different kinds of emails we send for Baremetrics.

Intercom’s pricing structure allows them to be modular and also provides many upsell opportunities

The concept of the Value-to-Price Ratio can also help understand how your pricing plays into retention.

With a 1:1 Value-to-Price Ratio, customers are getting just as much value as they’re paying for, and while this seems reasonable, that doesn’t actually help them. It gives them no reason to use you. Whereas with a 10:1 Value/Price Ratio, customers will practically feel obligated to tell others about it and they’ll also stick around for a long time.

If customers are canceling because it’s “too expensive,” that’s usually an indicator that the Value-to-Price Ratio isn’t high enough for them. But instead of just defaulting to lowering the price, you can also look to find more ways to increase the value they’re getting.

Aspirational pricing is when you launch a product and people tell you it's too expensive. Instead of charging less, figure out "What would my product need to do to be worth that?"

Dropping prices can be a short-term win. It's rare that it's the best long-term play.

For most self-serve products (i.e. signup and starting using the product without having to interact with a human being), monthly billing has become the default standard billing period. The lack of commitment can reduce friction to get more new customers in the door, but can also spell trouble in more ways than you might be aware.

Let’s say you had very respectable monthly churn rate of just 3%. After a year, you’ll have lost 30% of your original customers. If you started with 500 active customers and your ARPU is $100, that’s $15,000 in lost MRR.

However, if 30% of your customers convert to annual billing instead of monthly, you’ll only lose 20% of your original customers over the course of a year, reducing your monthly churn by a whole percentage point to 2%.

Not only that, but you also get more cash upfront to reinvest in the product and support, a minimum 12-month commitment, and a long-term mindset and buy-in from customers.

In order to get more annual adoption, it’s common to discount plans by 15-25% and show annual pricing on the pricing page, when upgrading, via an email 2-3 months into the customer’s subscription, and at year-end when the expense can be counted towards that year’s tax filing.

You may even consider giving larger discounts on the plans you want to get more annual billing adoption. You can also use a larger discount to kickstart or increase the number of total customers adopting annual billing like in the example below.

5. Follow up with delinquent customers

When we crunched the numbers on our customers, we found that on average, 9% of your MRR is at risk to be lost to failed charges and delinquent customers.

9% is a huge number! It varies, obviously, but this is an area that most businesses have room to improve.

We’re firm believers that every SaaS business needs a dunning solution. It’s a no-brainer. And the magic is that you can just set it and forget it.

In fact, this is the reason why we built Recover to help with this exact problem.

It’s a full suite of dunning tools that allows you to send automated emails to your delinquent or soon to be delinquent customers both before and after a payment has failed, send them straight to a credit card capture form that’s proven to convert to get them to update their payment method, and it even has an in-app reminder and paywall as well.

You don’t want to leave it to fate for your customers to discover there’s been a problem and hope they figure out how to update their payment method. You also don’t want to do it manually and waste valuable time and money on an unscalable, untimely system.

Crunching the numbers on the ROI revealed that customers recover 38X more revenue than what they pay for the product on average.

Sometimes, this alone can cut churn in half.

6. Educate and teach customers with content

Believe it or not, the content you produce can help improve retention.

This is because customers don’t just want to use your technology, they want to learn from you. If you can be an expert to them, you’ll always have their business.

They’re one of the only companies I know of who talk about how to use their product in every single one of their blog posts — and pull it off without being salesy at all.

When you can teach someone how to do something and then say “Here, use this tool to do it” that’s a powerful combination.

They’ve covered virtually every topic under the sun about SEO. And all those articles are educating customers on how to use their product.

There’s never an excuse for “I didn’t know how to use it” or “Didn’t use it enough” because you’d have to be blind to not come across any of this content across the web or even in the app where they promote it.

7. Create product training material

Similarly, you can take it to the next level by creating content specifically for training purposes.

Customers are far more likely to stick around when they are experts at using your product and have invested time and energy on training.

Their videos are hilarious, super high quality, and do a fantastic job at teaching you web design along with how to use Webflow.

If customers had to choose between a web design tool that had tons of specific and entertaining training videos and a web design tool that had nothing, you know they’re going with the one with training videos.

It’s easy to disillusion yourself to think that the product can be so intuitive to use that users should never need training videos like this. But you’d be missing out on a large majority of users who need detailed instructions and examples to learn.

It’s almost never as intuitive as you think. You can’t afford to take that risk.

8. Gather qualitative feedback on why your customers cancel

Here’s a novel idea…

When customers cancel, ask them why!

A lot of companies guess why customers cancel. They hear things here and there and then make assumptions about what customers are saying and who said what.

Guessing is a bad strategy.

If your customers could tell you exactly what to do in order to reduce churn, wouldn’t you want to know?

You could technically build this yourself or hack it together another way if you had the time and resources, but we recommend that you at least have a way to:

Capture qualitative feedback in the cancellation process or immediately after via email

Have a way to track which reasons are most common

Calculate the revenue associated with each reason given

Sometimes what you’ll find is that the loudest customers are the worst customers. They were paying you pennies and had a 90% discount but they’re just ungrateful terrible human beings.

You might find a reason that’s unexpected or maybe not even the most common reason, but it’s causing the most lost revenue. In that case you can focus on what’s going to save the most revenue and prioritize your efforts.

By gathering qualitative feedback about why customers cancel, you can get straight to the source of your churn to figure out what it’s going to take to improve your retention and get to work on those changes.

9. Reactivate churned customers

Here’s another novel idea: you can reduce churn by getting canceled customers to become customers again!

This is usually the one thing that no one is doing.

If you can create a strategy for reaching back out to churned customers to try to win them back, you will be far ahead of the pack.

One more quick plug: We help you do this with Baremetrics Cancellation Insights!

You can automate emails back to the customers who just canceled and personalize the message based on the reason they gave for why they canceled.

This makes it super relevant and also takes all the work out of doing it manually.

I find that just asking for a reply, rather than a link or a button, works best. The goal should be to simply start a conversation and really understand what’s going on so you can make an offer you can count on.

You may find that there was a misunderstanding, they had to cut back due to financial challenges, someone left the company, or otherwise. But at least you have an opportunity to get more information and try to win them back.

Technically, while this may not help you reduce your churn rate since it’s after-the-fact, it’ll still help retain more customers.

A simple email like this, automated or manual, can bring back customers and get you invaluable data.

Mind my typo in the first few words… but you’ll notice that it’s very short and direct. It’s achieved over 80% open rate and 60% reply rate because it’s straight to the point.

And while it’s hard to palate, the feedback is invaluable.

10. Implement proactive support

We all know that support is an important part of retention, but how much of that support is reactive versus proactive?

Support is one of the things that gets people to stay and can also be one of the main reasons people leave.

There are lots of unknown and unpreventable reasons people cancel:

There’s a big bug or outage

They go out of business

The team wants to move to something else

Etc

But there’s one reason that’s entirely in your control:

Support

Minimizing the number of customers who leave due to support issues will make your retention that much better.

We try to do proactive support where we’re actually asking to help people with the product.

One of the more innovative things I’ve seen done around support is offering to refund customers based on how much longer it takes you to fix something.

This builds trust with customers and also basically eliminates the excuse of bad support.

Frankly, pretty much anything you can do to retain a customer is worth it. The recurring nature of SaaS makes it so that it’s almost impossible to try too hard to keep a customer.

You have to decide for yourself how far you’re willing to go, but a customer is always better than nocustomer.

Proactive support can also come in the form of a well-constructed knowledge base.

Help Scout (which also offers a SaaS product for knowledge bases) is a great example themselves, and have also written about other great knowledge base examples.

Similarly, user forums can provide a great way to cultivate community and enable users help each other.

Webflow’s active forum has a large archive of answers to questions, tips, and examples of how to solve specific problems. These are also indexed by search engines, which can help new users easily troubleshoot and find potential solutions to problems.

11. Incorporate triggers to encourage habitual use

Habitual (read: NOT addictive) use will make your product far less likely to end up on the chopping block.

When was the last time you thought about how to make your product an indispensable part of someone’s work and schedule?

External triggers can come in the form of emails, in-app messages, web notifications, push notifications, highlights and tooltips, and more. Internal triggers can come from an order from the boss, a checklist item, a desire for an outcome, and an association with another process or system.

But if the triggers don’t exist, how can you expect users to come back to the product and continue as a paying customer? The action, reward, and investment all come after the trigger.

We’ve found email reports and our Slack bot to be great triggers to encourage habitual use.

12. Create loyalty with rewards, referrals, and affiliates

Rewards, referrals, and affiliates are usually associated with acquisition, but they also make for fantastic retention strategies.

Notion rewards users with referrals and using the product in certain ways.

13. Don’t be afraid to upsell, cross-sell, and promote upgrades

Upselling, cross-selling, and promoting upgrades increase retention for two reasons:

Higher ARPU correlates with higher retention, and

The more a customer uses your product, the more value they receive

While a low price can be a great reason for someone to choose your product instead of something else, it’s also a risk because it takes little thought to switch or cancel completely. Higher prices imply higher value and critical function.

And the more your product does for your customers, the harder you will be to replace. While you don’t want to intentionally engineer high switching costs, like holding someone’s data hostage for example, your goal should always be to become an indispensable tool for your customers.

A simple email, in-app message, pop-up, or button can be enough to get the conversation going and introduce an opportunity for an upsell, cross-sell, or upgrade like the example below.

14. Show your face, advise, and create relationships

While I can’t quantitatively prove that doing “unscalable” things like the examples below result in better retention, we can all agree that having a personal relationship with someone makes it a lot harder to switch.

At the end of the day, we’re all humans. And we like working with businesses we have real relationships with. There’s something to be said about having a personal relationship with customers instead of just a transactional one.

Something I’ve been doing for quite a while now is sending personalized demos of me walking someone through their own account. My goal isn’t necessarily to do a technical overview of our product, but instead to get someone to hear my voice, see my face, and know that these are the lengths we’re willing to go to for our customers.

This can also come in the form of webinars, strategy sessions, or even plain ole’ customer support.

People are baffled I do this, but it’s basically free. Just takes time. And I get an opportunity to get to know them and check in on their trial experience.

There’s no good excuse for not offering to personally help anyone of your customers. Even if it’s not related to your product, you can charge someone’s trust battery with simple acts of empathy and service.

Create tripwires to start conversations and start building relationships.

Next steps

To take your retention to the next level, take an audit and consider implementing these strategies according to what works best with your business.

There may be some you have fully implemented, and others that are completely new opportunities.

How disappointed would your customers be if they could no longer use your product? What’s your churn rate at today? How about your Quick Ratio?

Use these strategies to make your product more indispensable, improve retention, and build a healthier business.